As of last week, the S&P 500 index is up around 9% so far this year. I would be willing to bet that most of the mutual funds that you currently own in your company 401(k) retirement plan account are up much less.
Just a few U.S. stocks have accounted for almost half of the gains of the S&P 500 in 2017. The stark reality is now clear. If your company 401(k) retirement plan mutual fund are not heavily invested in those companies, you are taking all the stock market risk and getting a very small part of the investment returns.
Think of companies like Facebook, Apple, Netflix, Amazon, Microsoft, Nvidia, and Google. In investment lingo, these are called mega-cap tech stocks.
You need to own the mutual funds that are heavily invested in those companies in order to “make some money” in your company 401(k) retirement plan account now.
The problem is that most individual company 401(k) retirement plan participants manage their money using the classic human investment management theories. Modern Portfolio Theory, diversification and the ever popular ““buy-and-hold” are examples.
For the current generation of individual company 401(k) investors, these investment management strategies were all that was previously available. They picked one, or used a combination of all of them in order to increase their stock market success.
In today’s stock markets, fundamental investment management strategies have very little or no meaning. Book values of companies and their price earnings ratios are completely out the window.
The U.S. stock markets of today are dominated by machines that follow algorithms and quantitative strategies. The only thing that matters is owning the right stocks that are moving the market averages to new highs.
The investment management lesson for individual company 401(k) retirement plan participants is to be very aware of the kinds of stocks that are owned in your mutual funds. You have to be invested in the right mutual funds to grow your retirement assets in a meaningful way.
Don’t continue to own company 401(k) retirement plan mutual funds with the hope that long-term investment success will eventually shine on you. That is an outdated investment management strategy. Instead, get invested in what is providing the best investment performance now.
Ric Lager
Lager & Company, Inc.
